Welcome to part two of the Madgwicks Lawyers Coronavirus and the Law Series. In this series, Special Counsel Catherine Ballantyne explores some of the legal problems stemming from the virus and its effects on businesses in order to shine light on the issues we will likely face in the coming weeks.
In this article, Catherine examines the obligations under commercial leases and whether tenants can refuse to pay rent if their business is adversely affected by the coronavirus.
What clause in the lease is relevant?
The relevant clause in the lease is the force majeure clause (if such a clause has been inserted).
- Force Majeure is the legal principle for when there are unforeseen consequences that prevents someone from fulfilling their obligations under a contract.
- It can only be used if there is a “force majeure” clause in the contract – they usually deal with acts of God (such as an earthquake), war, riots, government intervention and extreme weather.
- The exact wording of the clause is relevant as to whether it includes a public health crisis - even if a pandemic it isn’t explicitly contemplated, it may be arguable that other phrases used in the clause are relevant.
Do all leases have a force majeure clause?
No – in fact many do not.
Even those leases that include a force majeure clause may only be applied in specific circumstances.
What are some examples?
Some examples of situations which may be covered, depending on the wording of the lease, are as follows:
- A mandatory closure of the premises may mean that the premises cannot be operated during business hours.
- If areas of a city are quarantined.
How do I know if my commercial lease covers the coronavirus?
You will need to obtain specialist legal advice as in many cases there is no provision which specifically covers disruptions to business such as the coronavirus.